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Textile Mills Still Say They’re Paying More for Raw Materials

Economic activity in the manufacturing sector grew in July, U.S. supply executives reported in the Institute for Supply Management (ISM) “Manufacturing Report On Business” published on Monday.

Of the 18 manufacturing industries, 11 sectors reported growth in the month, led by apparel, leather and allied products, and including textile mills, while seven sectors reported contraction in July compared to June, including furniture and related products.

Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee, said the July Manufacturing Purchasing Manager’s Index (PMI) registered 52.8 percent, down 0.2 percentage point from the reading of 53 percent in June. This figure indicates expansion in the overall economy for the 26th month in a row after a contraction in April and May 2020.

A Manufacturing PMI above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy. However, it was the lowest Manufacturing PMI figure since June 2020, when it registered 52.4 percent.

“The U.S. manufacturing sector continues expanding, though slightly less so in July, as new order rates continue to contract, supplier deliveries improve and prices soften to acceptable levels,” Fiore said. “According to Business Survey Committee respondents’ comments, companies continue to hire at strong rates, with few indications of layoffs, hiring freezes or headcount reduction through attrition…Price expansion eased dramatically in July, but instability in global energy markets continues.”

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ISM’s report panelists expressed concern about a softening in the economy amid developing anxiety about excess inventory in the supply chain. They also were more concerned about excessive inventories and continuing record-high lead times.

The ISM Prices Index registered 60 percent in July, 18.5 percent lower than June, indicating raw materials prices increased for the 26th consecutive month, but at a much slower rate. The Prices Index has been at or above 60 percent for 23 straight months. The month-over-month decline was the fourth biggest decline on record (since 1948) and the steepest since a 22.1 percent drop in June 2010.

“The slowing in price increases is being driven by volatility in the energy markets, softening in the copper, steel, aluminum and corrugate markets, and a significant decrease in chemical demand,” Fiore said. “Notably, 21.5 percent of respondents reported paying lower prices in July, compared to 8.3 percent in June.”

A Prices Index above 52.6 percent is generally in line an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

In July, 12 of 18 industries reported paying increased prices for raw materials, including textile mills, and furniture and related products.

ISM’s New Orders Index dropped to 48 percent in July, a decrease of 1.2 percent from June. This indicates that new order volumes contracted again after growing for 24 consecutive months.

A New Orders Index above 52.9 percent is usually tied to an increase in the Census Bureau’s series on manufacturing orders. Of the 18 manufacturing industries, furniture and related products were among seven that reported a decline in new orders in July.

The Production Index registered 53.5 percent in July, 1.4 percent below the June reading of 54.9 percent, but showing growth for the 26th consecutive month. An index above 52.4 percent is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

Apparel, leather and allied products topped the five industries reporting growth in production during the month. The six industries reporting a decrease in production in July included textile mills.

ISM’s Employment Index rose 2.6 percent to 49.9 percent last month. An Employment Index above 50.5 percent is usually in line with an increase in BLS data on manufacturing employment.

“Although an overwhelming majority of survey panelists again indicate their companies are hiring, they are still struggling to meet labor management plans,” Fiore said. “Turnover rates remain elevated, with 39 percent of comments citing backfills and retirements, an increase from 29 percent in June. Employment levels, driven primarily by turnover, remain the top issue affecting production growth.”

Eight of 18 manufacturing industries reported employment growth in July, led by apparel, leather and allied products, while six industries reporting a decrease in employment, topped by textile mills.

The delivery performance of suppliers to manufacturing organizations was slower in July, as the Supplier Deliveries Index registered 55.2 percent, 2.1 percent lower than June. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

Textile mills topped the 10 of 18 manufacturing industries reporting slower supplier deliveries in July, while furniture and related products were among the five sectors reporting faster supplier deliveries in July.

The Inventories Index rose 1.3 percent to 57.3 percent in July. An Inventories Index greater than 44.4 percent is usually consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories.

“Manufacturing inventories expanded at a faster rate compared to June, registering their highest level since July 1984, when the index registered 57.8 percent,” Fiore said. “Companies are showing the most concern about their inventory levels since the start of the pandemic in 2020, when a slowing of the manufacturing economy was anticipated.”

Of 18 manufacturing industries, the 13 reporting higher inventories in July were topped by apparel, leather and allied products and textile mills.

Following the same pattern, ISM’s Customers’ Inventories Index increased 4.3 percent to 39.5 percent last month. The 12 industries reporting customers’ inventories as too low included furniture and related products.

Fiore said customers’ inventories were too low for the 70th consecutive month, “a positive for future production growth, but customer inventory requirements are easing compared to previous months.”

ISM’s Backlog of Orders Index registered 51.3 percent in July, a 1.9 percent decrease compared to June, meaning order backlogs expanded for the 25th straight month. The seven industries reporting lower backlogs in July were led by furniture and related products.

“Backlogs expanded in July at a slower rate, as new order levels remain low and panelists’ customers prepare for a slowing in general manufacturing activity,” Fiore said. “A slowing in price increases is a positive for future new orders growth and backlogs expansion.”

ISM’s Imports Index increased 3.7 percent to 54.4 percent last month, with activity improved as Asia ports started to clear their backlogs, Fiore noted.

The 10 industries reporting growth in imports in July were led by textile mills.

ISM’s New Export Orders Index rose 1.9 percent to 52.6 percent in July, up for the 25th consecutive month.

“Gains were achieved in the month as the European economy stabilizes and China recovers from its recent Covid-19 lockdowns,” Fiore said.